Product: Concept of

Product
25 Jun 2024

Concept of Product

The product is the most tangible and important single component of the
marketing programme. The product policy and strategy is the cornerstone
of a marketing mix. If the product fails to satisfy consumer demand, no
additional cost on any of the other ingredients of the marketing mix will
improve the product performance in the market Place.

To the marketer products are the building blocks of a marketing plan. Good
products are key to market success. Product decisions are taken first by
the marketers and these decisions are central to all other marketing
decisions such as price, promotion and distribution.

It is the engine that pulls the rest of the marketing programme. Products fill
in the needs of society. They represent a bundle of expectations to
consumers and society.

The product concept has three dimensions:

1. Managerial Dimension

It covers the core specifications or physical attributes, related service,

brand, package, product life-cycle, and product planning and development.
As a basis to planning, product is second only to market and marketing
research.

The product offering must balance with consumer-citizen needs and

desires. Product planning and development can assure normal rate of
return on investment and continuous growth of the enterprise.

2. Consumer Dimension
To the consumer a product is actually a group of symbols or meanings.
People buy things not only for what they can do, but also for what they
mean. Each symbol communicates a certain information. A product
conveys a message indicating a bundle of expectations to a buyer.

Consumer’s perception of a product is critical to its success or failure. A

relevant product is one that is perceived by the consumer as per intentions
of the marketer. Once a product is bought by a consumer and his
evaluation, i.e., post-purchase experience is favourable, marketers can
have repeat orders.

3. Social Dimension

To the society salutary products and desirable products are always

welcome as they fulfill the expectations of social welfare and social
interests. Salutary products yield long-run advantages but may not have
immediate appeal.

Desirable products offer both benefits, immediate satisfaction and long-run

consumer welfare. Society dislikes the production of merely pleasing
products which only give immediate satisfaction but which sacrifice social
interests in the long-run.

Marketers have to fulfill the following social responsibilities while offering

the products to consumer:

● Conservation and best use of resources,

● Safety to users,
● Long-run satisfaction of consumers,
● Quality of life, concern for better environment,
● Fulfilment of government regulations relating to composition,
packaging and pricing of many products.
Product Line Decisions
25 Jun 2024

Production-Mix Decisions:

An organization is required to bring changes in product mix to make it

adaptable according to the needs of consumer. Product mix decisions refer
to addition, deletion or modification of product in product mix. Primary aim
of product mix decisions is sales and profit maximization.

Product mix decisions can be explained as follows:

● Product Line Decisions

○ Line stretching decisions
■ Downward Stretching
■ Upward stretching
■ Two Way Stretching
■ Line Filling Decisions
Product Line Decisions:

Product line refers to a group of same products. Product line decisions

refer to decisions relating to addition or deletion of product from the existing
product line. Addition and deletions in product can be explained as follows:

Line Stretching Decisions:

Line stretching implies increasing the length of product line. It can take
place in three directions.

a) Downward Stretching:

Downward stretching refers to addition of a new product into existing

product line but at a lesser price. For example; TATA introduced low cost
car “Nano” in the market.

b) Upward Stretching:
Upward stretching is the opposite of downward stretching. When an
organization adds a new product in the current product line but at higher
price than the existing one, it is called upward stretching. For example;
Parle started with low cost biscuits like Parle G then introduced high cost
product of same category like Hide and Seek.

c) Two-way Stretching:

Two way stretching refers to addition of product in product line in both the
directions. So, a low priced as well as a high priced product are added at
the same time in product line. Marriot- Hotels & Resorts started
Renaissance Hotels to serve upper end of the market and Town Place
suites to serve lower section of the market.

Line Filling Decisions:

Product line filling involves adding a new product in the existing product line
to face competition and increase consumer base. Under product line filling
price of the new product is normally same. For example, Maruti Suzuki
introduced Alto when Maruti Zen was already available in the same range.

Line Pruning Decisions:

Line pruning decisions refer to removal of unprofitable product from the

product line. For example Pepsi launched Pepsi Gold but the product was
not successful in the market. So after some time it was removed from the
market.
Product Strategy
25 Jun 2024

Whenever a new product launches in the market, it is difficult for the

company or brand to forecast where the product will reach or how it will
shape up. At such times, brands design the Product strategy.

The product strategy determines all the steps which a brand will have to
take to make the product a success. Alternatively, because this is how a
strategy works, the brand also has to decide what to do if the product is a
failure of it is not gaining traction in the market.

You can call a product strategy to be the vision of the product. If a company
launches a product, then it has a vision of where the product will reach. The
product strategy is the bare bone planning of the steps to ensure the
product reaches the desired space. Such a strategy helps in setting the
right direction for the product.

Product strategy helps in deciding the basic elements of a product such as

its marketing mix and its design. At the same time, it also helps in targeting
the product to the right segment, product line stretching etc. All this will be
discussed in the steps to develop a product strategy.

A common terminology used in product strategy is the product roadmap

which means the sequential step of events which need to take place to
ensure maximum penetration of the product and maximum product
adoption in the market. Product strategy helps the formation of the product
roadmap.

Importance of Product Strategy

● It helps decide the exact steps to be taken in any event to make the
product a success.
● It prepares the company for response by competitors or towards
changing market conditions.
● It helps the company decide the target market and in market
penetration.
A product vision is formed thereby setting the product on an independent
path with a time to time intervention allowing the company to focus on
multiple products in a short time.

A lot of product analysis is needed to develop a strategy. Besides product,

you need to analyze your competitors, the market and various segments so
that you can come up with the right product strategy. Here are the steps of
Product Strategy.

1) Marketing mix

The product is the most important element of the marketing mix. If you
have decided on a market segment to target, then product design plays a
crucial role. This is because a change in the product brings a change in all
the other elements of the marketing mix. Be it a service or a product, the
marketing mix majorly depends on the product for other aspects like
promotions, place and price.

You need to consider the marketing mix while deciding on the product
strategy. You also need to consider various aspects of the product such as
product line and length, what would be the packaging of the product and
what kind of labelling will be involved. In essence, the core aspects of the
product and its contribution to the marketing mix is decided in this step.

Example – While deciding on an electronics product strategy, you need to

decide the various product line and length that a single model will have.
You also need to decide the packaging and labelling to use besides
considering the effect of all these expenses on the marketing mix.

2) Levels of a product

A product has various levels. One of the articles on this site discusses the
three levels of a product which includes the core product, the actual
product, and the augmented product. The article also discusses examples
of the same so if you want to know the three levels of a product then click
here.

A marketer needs to assume the various levels of a product while deciding

the product strategy. Example – An automobile manufacturer or an
equipment manufacturer needs to give service along with the product to the
end customer.
If the manufacturer does not give service, then the product will not sell.
Hence at such a time, the manufacturer has to understand the important
role of the augmented product in the product strategy. Without the various
levels of the product and their proper implementation, the product strategy
can fail.

3) Type of products

The product that you are designing will be of which type? There are various
types of products. 4 of these types are discussed in this article. However,
while deciding the product strategy you need to consider what is the type
you want to target? Some of them are

● Durable products / Nondurable products

● Shopping goods / Specialty goods / Convenience goods
● Industrial goods/consumer goods
● Service products

Deciding on the type of product can help you in determining how to

penetrate your target market. STP is an important step in strategy but this
step will clear your mind on which segment you are going to target because
the product is restricted to that segment only.

4) Differentiation

There are various possibilities to differentiate a product or to differentiate

services. We have detailed articles on each which you can find by clicking
the links above. However, to make it simpler, here are the features which
you can use to differentiate a product or a service.

● Product Form and Product features

● Product performance levels
● Reliability / Repairability / Durability
● Style and Design
● Ordering ease / Ease of installation
● Customer service / Warranties and Guarantee

As can be seen above, these are critical decision-making elements for any
consumer and by creating differentiation at the product level, the product
strategy becomes a sound strategy to compete on even grounds with the
competitor.
Example – American Tourister is known for its durable luggage. The same
goes for Woodland shoes. These are brands which have targeted product
reliability and durability as a differentiating factor right from the product
strategy stage. As a result, their complete marketing strategy is focused
towards one direction – Promoting their products as far superior then
competition due to the differentiating factors.

5) Brand elements

Brand identity and Brand image are important considerations for the
success of any company. Naturally, when deciding on the product strategy,
you need to decide the brand elements for the product. There can be
numerous branding elements involved thereby giving more recognition for
the product and accumulating more respect in the market.

Example – Victorinox as a brand has several elements which can help

differentiate between the genuine products vs a fake one. It has a spring in
its swiss knife which makes a distinct sound thereby confirming that the
knife is genuine. Similarly, it has symbols on the top of the knife as well as
in smaller tools within the knife to differentiate the genuine from the fake.
The symbols are unique too thereby clearly helping the customers pick the
right product.

Such brand elements are important for the recognition and adoption of the
product in the market and they need to be created at the product strategy
and product design stage itself.

6) Product Design

Quite simply, a computer is a generic product name whereas desktops &

laptops are all variants of a computer. The only difference between laptops
and desktops is the product design. Both of them have CPU and both have
monitors. Thus, product design plays a crucial role in the success of a
product and should be given due consideration while designing the product
strategy.

The technology market is built on product design. This is why smartphones

have become a major crowd puller because of their differing aesthetics. If
we want to talk about product design, we just cannot ignore the fashion
industry which is completely dependent on the design of the product to built
its brand identity. Fashion labels like Gucci, Armani and others spend a
fortune getting the design right.

7) Product Mix

Sometimes a single product might not make the cut but its product variant
might be an instant hit. Take shampoos for example. Most in demand
shampoo are the Anti-dandruff shampoo. However, besides this, most of
the top shampoo brands have a variety of products on offer with minor
differences in ingredients. These are nothing but a combination of the
product mix.

This article explains best what Product mix is and how to analyze it.
Various concepts are explained such as the product line length, product
line width, product line depth, product line consistency etc.

In essence, to cater to all the various types of customers out there, a

company can come up with a complete product mix so that each customer
is satisfied with different variants of the same product. Because a huge
market share is covered with almost the same product, product mix needs
to be considered strongly in the product strategy stage.

When all this information is in hand, then the timeline matters. At the launch
of the product, you need your marketing mix in place. Once you notice the
rise of the product, you can decide on the type of product mix you want to
introduce in the market to encourage further purchases and to improve
brand equity of the product.

As said before, a product strategy helps you prepare for the future of the
product and to give the right targeted direction to the product. When you
have a combination of multiple products and various product mix’s, the
product strategy becomes very critical to make sense and to have the right
tactics up your sleeve for each product.

Product Levels
25 Jun 2024
Product refers to a tangible item or intangible service that satisfies a
specific need or want of consumers. It encompasses both goods, such as
physical items like smartphones or clothing, and services, such as
experiences like consulting or entertainment. Products are designed,
produced, marketed, and sold to fulfill consumer demands and generate
revenue for businesses. They play a central role in economic exchange
and are essential components of business operations worldwide.

Levels of Product:

● Core Benefit:

This is the fundamental need or problem-solving capability that the product

fulfills for the consumer. For example, a smartphone fulfills the core benefit
of communication and access to information.

● Generic Product:

This represents the basic version of the product with minimal features
necessary for its functioning. For instance, a generic smartphone includes
essential features like calling and messaging capabilities.

● Expected Product:
These are the attributes and qualities that consumers expect when they
purchase a product. For a smartphone, expected features might include a
touchscreen interface, camera, and access to apps and the internet.

● Augmented Product:

This level includes additional features, benefits, or services that enhance

the product beyond the expected. For example, a smartphone may come
with extended warranty, technical support, accessories, or bundled apps.

● Potential Product:

This encompasses future innovations or developments that could further

enhance the product’s value and attractiveness to consumers. It involves
anticipating and preparing for future customer needs and market trends,
such as upcoming upgrades in technology, new features, or expanded
functionalities.

Benefits of Kotler’s Five Product Level Model:

● Comprehensive Product Analysis:

Kotler’s model encourages businesses to analyze products across multiple

dimensions—from core benefits to potential future developments. This
holistic view helps in better understanding consumer needs and
preferences at different stages.

● Strategic Product Development:

By categorizing products into core, generic, expected, augmented, and

potential levels, businesses can strategically plan product development and
innovation. This structured approach aids in prioritizing features and
enhancements that add significant value to consumers.

● Market Differentiation:

The model facilitates differentiation strategies by identifying opportunities to

add unique features or services at the augmented level. This differentiation
helps in positioning products more effectively in the marketplace and
standing out from competitors.

● Customer Value Proposition:

It helps businesses articulate their value proposition clearly by aligning
product features with consumer expectations at each level. This ensures
that products not only meet basic requirements but also exceed customer
expectations through added benefits.

● Enhanced Customer Satisfaction:

Understanding and fulfilling expected and augmented product attributes

contribute to higher customer satisfaction levels. By delivering on promised
benefits and providing additional services, businesses can build stronger
relationships with customers.

● Future-Proofing Products:

Kotler’s model encourages businesses to anticipate future trends and

customer needs through the potential product level. This foresight allows
companies to innovate proactively and stay ahead of market changes,
ensuring long-term relevance and competitiveness.

Product mix., Scope,

Example
25 Jun 2024

Product Mix. refers to the complete assortment of products offered by a

company to meet the diverse needs and preferences of its target market. It
encompasses all the product lines and individual products within those
lines that a company manufactures or sells. A robust product mix is crucial
for businesses to cater to varying consumer demands, expand market
reach, and capitalize on different market segments. Companies
strategically manage their product mix by balancing factors such as product
variety, depth (number of variations within each product line), width
(number of product lines), and consistency (how closely related the
products are in terms of use, production, or distribution). Effective
management of the product mix enables companies to optimize sales,
enhance customer satisfaction, and maintain competitiveness in the
marketplace.
Scope of Product mix.:

● Product Line Expansion:

Companies can broaden their product mix by introducing new product lines
that cater to different customer needs or enter new market segments. This
expansion allows businesses to capture additional market share and
diversify their revenue streams.

● Product Line Rationalization:

Conversely, companies may rationalize their product mix by eliminating

underperforming products or consolidating similar products into fewer, more
streamlined lines. This helps focus resources on core products and
improve operational efficiency.

● Product Development:

Continual innovation and development within existing product lines are

essential for keeping offerings competitive and meeting evolving consumer
preferences. This includes enhancing product features, improving quality,
or introducing new variants to maintain market relevance.

● Brand Strategy:

The product mix also involves decisions related to brand positioning, brand
extensions, and managing brand portfolios. Companies may leverage
strong brands to introduce new products or extend existing brands into new
categories to capitalize on brand equity and consumer trust.

● Market Segmentation:

Tailoring the product mix to different market segments allows companies to

effectively meet varying consumer needs and preferences. This involves
identifying distinct customer groups and developing products that appeal
specifically to each segment.

● Lifecycle Management:

Managing the product mix also entails monitoring and adjusting products
across their lifecycle stages—from introduction to growth, maturity, and
decline. Companies may innovate to extend product lifecycles or phase out
products that no longer align with market demands.
 ● Strategic Alignment:

Aligning the product mix with overall business objectives, market

opportunities, and competitive dynamics is crucial. This involves conducting
market research, analyzing consumer trends, and making strategic
decisions that maximize profitability and sustainability.

● Distribution and Channel Strategy:

Decisions about how products are distributed and which channels are used
to reach customers are integral to the product mix scope. Companies must
ensure products are available where and when customers want them,
optimizing distribution efficiency and effectiveness.

Example of Product mix.:

Coca-Cola’s product mix includes a diverse range of beverages catering to

various consumer preferences and market segments.

1. Carbonated Soft Drinks:

○ Coca-Cola: The flagship product, available in various sizes and
formulations (Classic, Diet Coke, Coke Zero, etc.).
○ Sprite: Lemon-lime flavored soda.
○ Fanta: Fruit-flavored sodas such as orange, grape, and
pineapple.
○ Schweppes: Club soda and tonic water.
2. Non-Carbonated Beverages:
○ Minute Maid: Fruit juices and juice drinks (e.g., orange juice,
apple juice).
○ Powerade: Sports drinks for hydration and replenishment.
○ Dasani: Bottled water, available in different sizes and varieties
(e.g., flavored waters).
3. Energy Drinks:
○ Monster: Energy drinks targeting consumers seeking an energy
boost.
○ NOS: High-performance energy drinks.
4. Ready-to-Drink Teas and Coffees:
○ Gold Peak: Ready-to-drink teas, available in various flavors
(e.g., sweet tea, unsweetened tea).
○ Fuze Tea: Fusion teas combining tea extracts with fruit flavors.
5. Other Beverages:
 ○ Odwalla: Healthy and organic beverages, including smoothies
and protein drinks.
○ Glacéau Smartwater: Vapor-distilled water enhanced with
electrolytes.

In this example:

● Product Line Expansion:

Coca-Cola has expanded its product mix by introducing new product lines
such as bottled water (Dasani), energy drinks (Monster), and ready-to-drink
teas (Gold Peak).

● Brand Strategy:

The company leverages its strong Coca-Cola brand to introduce variations

like Diet Coke and Coke Zero, appealing to different consumer preferences
for lower calorie options.

● Market Segmentation:

Coca-Cola segments its market by offering a variety of beverages to appeal

to different demographic groups and consumer tastes, from traditional
sodas to healthier options like juices and teas.

● Lifecycle Management:

Products like Coca-Cola Classic have maintained popularity over decades,

while newer introductions like Fuze Tea reflect ongoing product
development and lifecycle management efforts.

Product Line Decisions

25 Jun 2024

Production-Mix Decisions:

An organization is required to bring changes in product mix to make it

adaptable according to the needs of consumer. Product mix decisions refer
to addition, deletion or modification of product in product mix. Primary aim
of product mix decisions is sales and profit maximization.
Product mix decisions can be explained as follows:

● Product Line Decisions

○ Line stretching decisions
■ Downward Stretching
■ Upward stretching
■ Two Way Stretching
■ Line Filling Decisions

Product Line Decisions:

Product line refers to a group of same products. Product line decisions

refer to decisions relating to addition or deletion of product from the existing
product line. Addition and deletions in product can be explained as follows:

Line Stretching Decisions:

Line stretching implies increasing the length of product line. It can take
place in three directions.

a) Downward Stretching:
Downward stretching refers to addition of a new product into existing
product line but at a lesser price. For example; TATA introduced low cost
car “Nano” in the market.

b) Upward Stretching:

Upward stretching is the opposite of downward stretching. When an

organization adds a new product in the current product line but at higher
price than the existing one, it is called upward stretching. For example;
Parle started with low cost biscuits like Parle G then introduced high cost
product of same category like Hide and Seek.

c) Two-way Stretching:

Two way stretching refers to addition of product in product line in both the
directions. So, a low priced as well as a high priced product are added at
the same time in product line. Marriot- Hotels & Resorts started
Renaissance Hotels to serve upper end of the market and Town Place
suites to serve lower section of the market.

Line Filling Decisions:

Product line filling involves adding a new product in the existing product line
to face competition and increase consumer base. Under product line filling
price of the new product is normally same. For example, Maruti Suzuki
introduced Alto when Maruti Zen was already available in the same range.

Line Pruning Decisions:

Line pruning decisions refer to removal of unprofitable product from the
product line. For example Pepsi launched Pepsi Gold but the product was
not successful in the market. So after some time it was removed from the
market.

Product Strategy
25 Jun 2024

Whenever a new product launches in the market, it is difficult for the

company or brand to forecast where the product will reach or how it will
shape up. At such times, brands design the Product strategy.

The product strategy determines all the steps which a brand will have to
take to make the product a success. Alternatively, because this is how a
strategy works, the brand also has to decide what to do if the product is a
failure of it is not gaining traction in the market.

You can call a product strategy to be the vision of the product. If a company
launches a product, then it has a vision of where the product will reach. The
product strategy is the bare bone planning of the steps to ensure the
product reaches the desired space. Such a strategy helps in setting the
right direction for the product.

Product strategy helps in deciding the basic elements of a product such as

its marketing mix and its design. At the same time, it also helps in targeting
the product to the right segment, product line stretching etc. All this will be
discussed in the steps to develop a product strategy.

A common terminology used in product strategy is the product roadmap

which means the sequential step of events which need to take place to
ensure maximum penetration of the product and maximum product
adoption in the market. Product strategy helps the formation of the product
roadmap.

Importance of Product Strategy

● It helps decide the exact steps to be taken in any event to make the
product a success.
 ● It prepares the company for response by competitors or towards
changing market conditions.
● It helps the company decide the target market and in market
penetration.

A product vision is formed thereby setting the product on an independent

path with a time to time intervention allowing the company to focus on
multiple products in a short time.

A lot of product analysis is needed to develop a strategy. Besides product,

you need to analyze your competitors, the market and various segments so
that you can come up with the right product strategy. Here are the steps of
Product Strategy.

1) Marketing mix

The product is the most important element of the marketing mix. If you
have decided on a market segment to target, then product design plays a
crucial role. This is because a change in the product brings a change in all
the other elements of the marketing mix. Be it a service or a product, the
marketing mix majorly depends on the product for other aspects like
promotions, place and price.

You need to consider the marketing mix while deciding on the product
strategy. You also need to consider various aspects of the product such as
product line and length, what would be the packaging of the product and
what kind of labelling will be involved. In essence, the core aspects of the
product and its contribution to the marketing mix is decided in this step.

Example – While deciding on an electronics product strategy, you need to

decide the various product line and length that a single model will have.
You also need to decide the packaging and labelling to use besides
considering the effect of all these expenses on the marketing mix.

2) Levels of a product

A product has various levels. One of the articles on this site discusses the
three levels of a product which includes the core product, the actual
product, and the augmented product. The article also discusses examples
of the same so if you want to know the three levels of a product then click
here.
A marketer needs to assume the various levels of a product while deciding
the product strategy. Example – An automobile manufacturer or an
equipment manufacturer needs to give service along with the product to the
end customer.

If the manufacturer does not give service, then the product will not sell.
Hence at such a time, the manufacturer has to understand the important
role of the augmented product in the product strategy. Without the various
levels of the product and their proper implementation, the product strategy
can fail.

3) Type of products

The product that you are designing will be of which type? There are various
types of products. 4 of these types are discussed in this article. However,
while deciding the product strategy you need to consider what is the type
you want to target? Some of them are

● Durable products / Nondurable products

● Shopping goods / Specialty goods / Convenience goods
● Industrial goods/consumer goods
● Service products

Deciding on the type of product can help you in determining how to

penetrate your target market. STP is an important step in strategy but this
step will clear your mind on which segment you are going to target because
the product is restricted to that segment only.

4) Differentiation

There are various possibilities to differentiate a product or to differentiate

services. We have detailed articles on each which you can find by clicking
the links above. However, to make it simpler, here are the features which
you can use to differentiate a product or a service.

● Product Form and Product features

● Product performance levels
● Reliability / Repairability / Durability
● Style and Design
● Ordering ease / Ease of installation
● Customer service / Warranties and Guarantee
As can be seen above, these are critical decision-making elements for any
consumer and by creating differentiation at the product level, the product
strategy becomes a sound strategy to compete on even grounds with the
competitor.

Example – American Tourister is known for its durable luggage. The same
goes for Woodland shoes. These are brands which have targeted product
reliability and durability as a differentiating factor right from the product
strategy stage. As a result, their complete marketing strategy is focused
towards one direction – Promoting their products as far superior then
competition due to the differentiating factors.

5) Brand elements

Brand identity and Brand image are important considerations for the
success of any company. Naturally, when deciding on the product strategy,
you need to decide the brand elements for the product. There can be
numerous branding elements involved thereby giving more recognition for
the product and accumulating more respect in the market.

Example – Victorinox as a brand has several elements which can help

differentiate between the genuine products vs a fake one. It has a spring in
its swiss knife which makes a distinct sound thereby confirming that the
knife is genuine. Similarly, it has symbols on the top of the knife as well as
in smaller tools within the knife to differentiate the genuine from the fake.
The symbols are unique too thereby clearly helping the customers pick the
right product.

Such brand elements are important for the recognition and adoption of the
product in the market and they need to be created at the product strategy
and product design stage itself.

6) Product Design

Quite simply, a computer is a generic product name whereas desktops &

laptops are all variants of a computer. The only difference between laptops
and desktops is the product design. Both of them have CPU and both have
monitors. Thus, product design plays a crucial role in the success of a
product and should be given due consideration while designing the product
strategy.
The technology market is built on product design. This is why smartphones
have become a major crowd puller because of their differing aesthetics. If
we want to talk about product design, we just cannot ignore the fashion
industry which is completely dependent on the design of the product to built
its brand identity. Fashion labels like Gucci, Armani and others spend a
fortune getting the design right.

7) Product Mix

Sometimes a single product might not make the cut but its product variant
might be an instant hit. Take shampoos for example. Most in demand
shampoo are the Anti-dandruff shampoo. However, besides this, most of
the top shampoo brands have a variety of products on offer with minor
differences in ingredients. These are nothing but a combination of the
product mix.

This article explains best what Product mix is and how to analyze it.
Various concepts are explained such as the product line length, product
line width, product line depth, product line consistency etc.

In essence, to cater to all the various types of customers out there, a

company can come up with a complete product mix so that each customer
is satisfied with different variants of the same product. Because a huge
market share is covered with almost the same product, product mix needs
to be considered strongly in the product strategy stage.

When all this information is in hand, then the timeline matters. At the launch
of the product, you need your marketing mix in place. Once you notice the
rise of the product, you can decide on the type of product mix you want to
introduce in the market to encourage further purchases and to improve
brand equity of the product.

As said before, a product strategy helps you prepare for the future of the
product and to give the right targeted direction to the product. When you
have a combination of multiple products and various product mix’s, the
product strategy becomes very critical to make sense and to have the right
tactics up your sleeve for each product.
Branding and Branding
strategies
28 Dec 2019

A brand is the idea or image of a specific product or service that consumers

connect with, by identifying the name, logo, slogan, or design of the
company who owns the idea or image. Branding is when that idea or image
is marketed so that it is recognizable by more and more people, and
identified with a certain service or product when there are many other
companies offering the same service or product. Advertising professionals
work on branding not only to build brand recognition, but also to build good
reputations and a set of standards to which the company should strive to
maintain or surpass. Branding is an important part of Internet commerce,
as branding allows companies to build their reputations as well as expand
beyond the original product and service, and add to the revenue generated
by the original brand.

When working on branding, or building a brand, companies that are using

web pages and search engine optimization have a few details to work out
before being able to build a successful brand. Coordinating domain names
and brand names are an important part of finding and keeping visitors and
clients, as well as branding a new company. Coordination of a domain
name and brand names lends identification to the idea or image of a
specific product or service, which in turn lets visitors easily discovery the
new brand.

Branding is also a way to build an important company asset, which is a

good reputation. Whether a company has no reputation, or a less than
stellar reputation, branding can help change that. Branding can build an
expectation about the company services or products, and can encourage
the company to maintain that expectation, or exceed them, bringing better
products and services to the market place.
Manufacturer vs. Private Brands
When a brand identity is clearly linked with the manufacturer of the product,
it is called a manufacturer brand. Also known as a national brand,
marketers usually choose this option when the firm has a strong, positive
image. But some products, especially if they are not well-differentiated in
the marketplace, benefit by being associated with the store where they are
sold. For example, major drugstore chains routinely offer their own
private-label brands of staple products like pain relievers and skin cream.

Individual vs. Family Brands

Individual branding is a strategic approach used by firms with sufficient

resources to create a separate identity for each product they offer. It makes
the most sense when a company sells items in very different categories,
like candy and detergent, or to highly distinct target audiences. Conversely,
firms with multiple offerings in the same category, like soup or cereal, often
market a variety of products under the same name. This use of a unified
platform is called family branding.

Co-branding

Co-branding is a strategy that links two existing brand names to create an

identity for a new product. There are three variations of this approach.
Ingredient branding is when one product is integral to the other, like an ice
cream brand blended with a well-known liquor. Cooperative branding
involves two or more brands sharing a promotion. For example, Hilton
Hotels and Hertz might advertise jointly for holiday vacationers. In
complementary branding, brands are marketed together to suggest the
benefits of using both, like a restaurant offering discounts at a local movie
theater.

Trademarks

Regardless of which branding strategy they select, marketers often seek

trademark protection. This gives them exclusive rights to the brand name,
symbol and design, enforced by law and involving penalties for
unauthorized use. To obtain a trademark, the company must file an
application with the U.S. Patent and Trademark Office and follow specific
guidelines. But the alternative is to risk a competitor copying some aspect
of the brand identity and benefiting unfairly from the original firm’s
investment.

Two key components of any brand strategies

● Brand extension

Brand extension is a common method used by companies to launch a new

product by using an existing brand name on a new product in a different
category. A company using brand extension hopes to leverage its existing
customer base and brand loyalty to increase its profits with a new product
offering.

For brand extension to be successful, there usually must be some logical

association between the original product and the new one. A weak or
nonexistent association can result in brand dilution. Even worse, if a brand
extension is unsuccessful, it can harm the parent brand.

● Brand Portfolios

When large businesses operate under multiple different brands, services

and companies, a brand portfolio is used to encompass all these entities
under one umbrella. Often, each of these brands has its own separate
trademarks and operates as an individual business entity. However, for
marketing purposes, a brand portfolio is used to group them all together.
Brand portfolios are also used to lessen consumer confusion in regard to
who owns particular brands.

Examples of Brand Portfolios

To better explain what a brand portfolio looks like, consider the Hilton
brand. In addition to the Hilton Hotels and Resorts brand, the company also
owns numerous other business entities, which are all grouped under the
brand portfolio name Hilton Worldwide. A few of the other brands under
Hilton Worldwide include the Waldorf Astoria Hotels and Resorts, Embassy
Suites Hotels and Homewood Suites. As another example, consider
PepsiCo. PepsiCo is the brand portfolio name of several food and
beverage companies that include not only Pepsi, but also brands such as
Frito Lay, Quaker and Tropicana.

Advantages of Using a Brand Portfolio

When businesses try to run each of their brands completely separate from
one another, confusion and inefficiency can prevail. In contrast, by utilizing
a brand portfolio, the business is able to focus on the big picture, causing
resources to be better allocated to where they can do the most good, thus
creating the most value, and reducing unnecessary overlap. For example, if
a new brand with potential is left solely to its own resources, it could be
starved out of resources before ever having a chance to get off the ground.

Brand Relationships Within Portfolios

Three different relationship structures are used for brand portfolios. One
type uses a single brand name across the entire organization, without
differentiating any sub-brands. Examples of this include IBM, Goldman
Sachs and Greenpeace. Another type uses a primary brand to endorse
sub-brands. Examples of this includes Ralph Lauren endorsing Polo,
Microsoft endorsing Windows and McDonald’s endorsing the Big Mac. The
final type uses a house of brands to encompass individual brands.
Examples of this includes how Pampers operates under Proctor and
Gamble and how Viagra operates under Pfizer.

Elements of an Ideal Brand Portfolio

Since how a brand portfolio is managed has a direct impact on the growth
and future success of the business, properly organizing the brand portfolio
is vital. The ideal portfolio should always fit with the businesses vision of its
future in the marketplace. The brand portfolio should also prioritize key
elements and markets vital to its success. When brands no longer fit in with
the portfolio, they should be either altered to better conform or altogether
eliminated. Above all else, the brand portfolio should continue to make
acquisitions to fill any gaps.

New Product
Development Strategies
19 Feb 2018

New Product development is a journey. It’s the road which leads to the
actual product and then the actual product to the market. As it is said, it all
starts with an idea. Every product goes through a number of stages before
being introduced in the market.
Idea Generation

The first stage of the New Product Development is the idea generation.
Ideas come from everywhere, can be of any form, and can be numerous.
This stage involves creating a large pool of ideas from various sources,
which include

● Internal sources– many companies give incentives to their

employees to come up with workable ideas.
● SWOT analysis– Company may review its strength, weakness,
opportunities and threats and come up with a good feasible idea.
● Market research– Companies constantly reviews the changing
needs, wants, and trends in the market.
● Customers– Sometimes reviews and feedbacks from the customers
or even their ideas can help companies generate new product ideas.
 ● Competition– Competitors SWOT analysis can help the company
generate ideas.

Idea Screening

Ideas can be many, but good ideas are few. This second step of new
product development involves finding those good and feasible ideas and
discarding those which aren’t. Many factors play a part here, these include
–

● Company’s strength,
● Company’s weakness,
● Customer needs,
● Ongoing trends,
● Expected ROI,
● Affordability, etc.

Concept Development & Testing

The third step of the new product development includes concept

development and testing. A concept is a detailed strategy or blueprint
version of the idea. Basically, when an idea is developed in every aspect so
as to make it presentable, it is called a concept.

All the ideas that pass the screening stage are turned into concepts for
testing purpose. You don’t want to launch a product without its concept
being tested, right?

The concept is now brought to the target market. Some selected customers
from the target group are chosen to test the concept. Information is
provided to them to help them visualize the product. It is followed by
questions from both sides. Business tries to know what the customer feels
of the concept. Does the product fulfil customer’s need or want? Will they
buy it when it’s actually launched?

Their feedback helps the business to develop the concept further.

Business Strategy Analysis & Development

The testing results help the business in coming up with the final concept to
be developed into a product.
Now that the business has a finalized concept, it’s time for it to analyse and
decide the marketing and other business strategies that will be used.
Estimated product profitability is estimated, marketing mix, and branding
strategies are decided for the product.

● Competition of the product

● Costs involved
● Pricing strategies Breakeven point, etc.

Product Development

Once all the strategies are approved, the product concept is transformed
into an actual tangible product. This development stage of New Product
Development results in building up of a prototype or a limited production
model. All the branding and other strategies decided previously are tested
and applied in this stage.

Test Marketing

Unlike concept testing, here the actual prototype is introduced for research
and feedback. Actual customers feedback are taken and further changes, if
required, are made to the product. This process is of utmost importance as
it validates the whole concept and makes the company ready for the
launch.

Commercialization

The product is ready, so should be the marketing strategies. The marketing

mix is now put to use. The final decisions are to be made. Markets are
decided for the product to launch in. This stage involves briefing different
departments about the duties and targets. Every minor and major decision
is made before the final introduction stage of the New Product
Development.

Introduction

This stage involves the final introduction of the product in the market. This
stage is the initial stage of the actual product life-cycle.

Related
Technology Transfer

There are many definitions of technology transfer. The Association of

University Technology Managers (AUTM): “Technology transfer is the
process of transferring scientific findings from one organization to another
for the purpose of further development and commercialisation.” The
process typically includes: Identifying new technologies Protecting
technologies through patents and copyrights Forming…

16 Apr 2018

In "Management Notes"

Systematic Approach to Training

A comprehensive training programme involves the systematic development

of various competencies and facilitating the development of the knowledge,
skills and attitude required by the employees at work. It includes specific
interrelated and interdependent steps which progress systematically for
getting the desired outcomes from the training & development efforts. (i)
Understanding…

2 Dec 2018

In "GGSIPU MBA Notes"

Product Levels

Product refers to a tangible item or intangible service that satisfies a

specific need or want of consumers. It encompasses both goods, such as
physical items like smartphones or clothing, and services, such as
experiences like consulting or entertainment. Products are designed,
produced, marketed, and sold to fulfill consumer demands…

Product Life cycle

Concept & Strategies
25 Jun 2024

The Product Life Cycle contains five distinct stages. For the four stages
introduction, growth, maturity and decline, we can identify specific product
life cycle strategies. These are based on the characteristics of each PLC
stage. Which product life cycle strategies should be applied in each stage
is crucial to know in order to manage the PLC properly. We will now go into
these four PLC stages in detail to identify characteristics of the stages and
product life cycle strategies for each.

https://youtu.be/TfELSSDeW7A

Introduction stage – Product Life Cycle Strategies

The introduction stage is the stage in which a new product is first

distributed and made available for purchase, after having been developed
in the product development stage. Therefore, the introduction stage starts
when the product is first launched. But introduction can take a lot of time,
and sales growth tends to be rather slow. Nowadays successful products
such as frozen foods and HDTVs lingered for many years before entering a
stage of more rapid growth.

Furthermore, profits in the introduction stage are negative or low due to the
low sales on the one hand and high-distribution and promotion expenses
on the other hand. Obviously, much money is needed to attract distributors
and build their stocks. Also, promotion spending is quite high to inform
consumers of the new product and get them to try it.

In the introduction stage, the focus is on selling to those buyers who are the
most ready to buy (innovators).

Concerning the product life cycle strategies we can identify the proper
launch strategy: the company must choose a launch strategy that is
consistent with the intended product positioning. Without doubt, this initial
strategy can be considered to be the first step in a grander marketing plan
for the product’s entire life cycle.

The main objective should be to create product awareness and trial.

To be more precise, since the market is normally not ready for product
improvements or refinements at this stage, the company produces basic
versions of the product. Cost-plus pricing should be used to recover the
costs incurred. Selective distribution in the beginning helps to focus efforts
on the most important distributors. Advertising should aim at building
product awareness among innovators and early adopters. To entice trial,
heavy sales promotion is necessary. Following these product life cycle
strategies for the first PLC stage, the company and the new product are
ready for the next stages.

Growth stage – Product Life Cycle Strategies

The growth stage is the stage in which the product’s sales start climbing
quickly. The reason is that early adopters will continue to buy, and later
buyers will start following their lead, in particular if they hear favourable
word of mouth. This rise in sales also attracts more competitors that enter
the market. Since these will introduce new product features, competition is
fierce and the market will expand. As a consequence of the increase in
competitors, there is an increase in the number of distribution outlets and
sales are augmented due to the fact that resellers build inventories. Since
promotion costs are now spread over a larger volume and because of the
decrease in unit manufacturing costs, profits increase during the growth
stage.

The main objective in the growth stage is to maximise the market share.

Several product life cycle strategies for the growth stage can be used to
sustain rapid market growth as long as possible. Product quality should be
improved and new product features and models added. The firm can also
enter new market segments and new distribution channels with the product.
Prices remain where they are or decrease to penetrate the market. The
company should keep the promotion spending at the same or an even
higher level. Now, there is more than one main goal: educating the market
is still important, but meeting the competition is likewise important. At the
same time, some advertising must be shifted from building product
awareness to building product conviction and purchase.

The growth stage is a good example to demonstrate how product life cycle
strategies are interrelated. In the growth stage, the firm must choose
between a high market share and high current profits. By spending a lot of
money on product improvements promotion and distribution, the firm can
reach a dominant position. However, for that it needs to give up maximum
current profits, hoping to make them up in the next stage.

Maturity stage – Product Life Cycle Strategies

The maturity stage is the stage in which the product’s sales growth slows
down or levels off after reaching a peak. This will happen at some point,
since the market becomes saturated. Generally, the maturity stage lasts
longer than the two preceding stages. Consequently, it poses strong
challenges to marketing management and needs a careful selection of
product life cycle strategies. Most products on the market are, indeed, in
the maturity stage.

The slowdown in sales growth is due to many producers with many

products to sell. Likewise, this overcapacity results in greater competition.
Since competitors start to mark down prices, increase their advertising and
sales promotions and increase their product development budgets to find
better versions of the product, a drop in profit occurs. Also, some of the
weaker competitors drop out, eventually leaving only well-established
competitors in the industry.

The company’s main objective should be to maximise profit while defending

the market share.

To reach this objective, several product life cycle strategies are available.
Although many products in the maturity stage seem to remain unchanged
for long periods, most successful ones are actually adapted constantly to
meet changing consumer needs. The reason is that the company cannot
just ride along with or defend the mature product – a good offence is the
best defence. Therefore, the firm should consider to modify the market,
product and marketing mix. Modifying the market means trying to increase
consumption by finding new users and new market segments for the
product. Also, usage among present customers can be increased.
Modifying the product refers to changing characteristics such as quality,
features, style or packaging to attract new users and inspire more usage.
And finally, modifying the marketing mix involves improving sales by
changing one or more marketing mix elements. For instance, prices could
be cut to attract new users or competitors’ customers. The firm could also
launch a better advertising campaigns or rely on aggressive sales
promotion.

Decline stage – Product Life Cycle Strategies

Finally, product life cycle strategies for the decline stage must be chosen.
The decline stage is the stage in which the product’s sales decline. This
happens to most product forms and brands at a certain moment. The
decline can either be slow, such as in the case of postage stamps, or rapid,
as has been the case with VHS tapes. Sales may plummet to zero, or they
may drop to a low level where they continue for many years.

Reasons for the decline in sales can be of various natures. For instance,
technological advances, shifts in consumer tastes and increased
competition can play a key role. As sales and profits decline, some
competitors will withdraw from the market.

Also for the decline stage, careful selection of product life cycle strategies
is required. The reason is that carrying a weak product can be very costly
to the firm, not just in profit terms. There are also many hidden costs. For
instance, a weak product may take up too much of management’s time. It
requires advertising and sales-force efforts that could better be used for
other, more profitable products in other stages. Most important may be the
fact that carrying a weak product delays the search for replacements and
creates a lopsided product mix. It also hurts current profits and weakens
the company’s foothold on the future.

Therefore, proper product life cycle strategies are critical. The company
needs to pay more attention to its aging products to identify products in the
decline stage early. Then, the firm must take a decision: maintain, harvest
or drop the declining product.

The main objective in the decline stage should be to reduce expenditure

and “milk” the brand. General strategies for the decline stage include
cutting prices, choosing a selective distribution by phasing out unprofitable
outlets and reduce advertising as well as sales promotion to the level
needed to retain only the most loyal customers.

If management decides to maintain the product or brand, repositioning or

reinvigorating it may be an option. The purpose behind these options is to
move the product back into the growth stage of the PLC. If management
decides to harvest the product, costs need to be reduced and only the last
sales need to be harvested. However, this can only increase the company’s
profits in the short-term. Dropping the product from the product line may
involve selling it to another firm or simply liquidate it at salvage value.

In the following, all characteristics of the four product life cycle stages
discussed are listed. For each, product life cycle strategies with regard to
product, price, and distribution, advertising and sales promotion are
identified. Choosing the right product life cycle strategies is crucial for the
company’s success in the long-term.
Pricing Strategies
9 Sep 2024

A business can use a variety of pricing strategies when selling a product or

service. The price can be set to maximize profitability for each unit sold or
from the market overall. It can be used to defend an existing market from
new entrants, to increase market share within a market or to enter a new
market.
Types of Pricing Strategies:

1. Penetration Pricing.

The price charged for products and services is set artificially low in order to
gain market share. Once this is achieved, the price is increased. This
approach was used by France Telecom and Sky TV. These companies
need to land grab large numbers of consumers to make it worth their while,
so they offer free telephones or satellite dishes at discounted rates in order
to get people to sign up for their services. Once there is a large number of
subscribers prices gradually creep up. Taking Sky TV for example, or any
cable or satellite company, when there is a premium movie or sporting
event prices are at their highest – so they move from a penetration
approach to more of a skimming/premium pricing approach.

2. Skimming Pricing

Price skimming sees a company charge a higher price because it has a

substantial competitive advantage. However, the advantage tends not to be
sustainable. The high price attracts new competitors into the market, and
the price inevitably falls due to increased supply.

Manufacturers of digital watches used a skimming approach in the 1970s.

Once other manufacturers were tempted into the market and the watches
were produced at a lower unit cost, other marketing strategies and pricing
approaches are implemented. New products were developed and the
market for watches gained a reputation for innovation.

3. Competition Pricing

Competitive pricing consists of setting the price at the same level as one’s
competitors. This method relies on the idea that competitors have already
thoroughly worked on their pricing. In any market, many firms sell the same
or very similar products, and according to classical economics, the price for
these products should, in theory, already be at an equilibrium (or at least at
a local equilibrium). Therefore, by setting the same price as its competitors,
a newly-launched firm can avoid the trial and error costs of the price-setting
process. However, every company is different and so are its costs.
Considering this, the main limit of the competitive pricing method is that it
fails to account for the differences in costs (production, purchasing, sales
force, etc.) of individual companies. As a result, this pricing method can
potentially be inefficient and lead to reduced profits.

For example, a firm needs to price a new coffee maker. The firm’s
competitors sell it at $25, and the company considers that the best price for
the new coffee maker is $25. It decides to set this very price on their own
product. Moreover, this pricing method can also be used in combination
with other methods such as penetration pricing for example, which consists
of setting the price below that of its competition (for instance, in this
example, setting the price of the coffee maker at $23).

4. Product Line Pricing.

Where there is a range of products or services the pricing reflects the

benefits of parts of the range. For example car washes; a basic wash could
be $2, a wash and wax $4 and the whole package for $6. Product line
pricing seldom reflects the cost of making the product since it delivers a
range of prices that a consumer perceives as being fair incrementally –
over the range.

If you buy chocolate bars or potato chips (crisps) you expect to pay X for a
single packet, although if you buy a family pack which is 5 times bigger, you
expect to pay less than 5X the price. The cost of making and distributing
large family packs of chocolate/chips could be far more expensive. It might
benefit the manufacturer to sell them singly in terms of profit margin,
although they price over the whole line. Profit is made on the range rather
than single items.

5. Psychological Pricing.

This approach is used when the marketer wants the consumer to respond
on an emotional, rather than rational basis. For example Price Point
Perspective (PPP) 0.99 Cents not 1 US Dollar. It’s strange how consumers
use price as an indicator of all sorts of factors, especially when they are in
unfamiliar markets. Consumers might practice a decision avoidance
approach when buying products in an unfamiliar setting, an example being
when buying ice cream. What would you like, an ice cream at $0.75, $1.25
or $2.00? The choice is yours. Maybe you’re entering an entirely new
market. Let’s say that you’re buying a lawnmower for the first time and
know nothing about garden equipment. Would you automatically by the
cheapest? Would you buy the most expensive? Or, would you go for a
lawnmower somewhere in the middle? Price therefore may be an indication
of quality or benefits in unfamiliar markets.

6. Cost Plus Pricing

Your company has been developing a new printer that will streamline many
processes for your small business customers. Your job is to determine the
price of the printer. After doing some research, you determine that the best
method for pricing the printer is the cost-plus method.

Cost-plus pricing is a straightforward and simple way to arrive at a sales

price by adding a markup to the cost of a product. In our example of the
printer, you first have to determine the break-even price, which is the sum
of all of the expenses involved in creating a product, including expenses
like supplies, production costs, and marketing costs. When you pull all of
the expenses together to determine the cost of each printer, you determine
that each one will cost $78 to produce. If you sold the printer at $78 your
company would break even, meaning there would be no profit or loss.

7. Cost-based pricing

Cost-based pricing involves setting prices based on the costs for

producing, distributing and selling the product. Also, the company normally
adds a fair rate of return to compensate for its efforts and risks. To begin
with, let’s look at some famous examples of companies using cost-based
pricing. Firms such as Ryanair and Walmart work to become the low-cost
producers in their industries. By constantly reducing costs wherever
possible, these companies are able to set lower prices. Certainly, that leads
to smaller margins, but greater sales and profits on the other hand. But
even companies with higher prices may rely on cost-based pricing.
However, these companies usually intentionally generate higher costs so
that they can claim higher prices and margins.

8. Optional Product Pricing.

Companies will attempt to increase the amount customers spend once they
start to buy. Optional ‘extras’ increase the overall price of the product or
service. For example airlines will charge for optional extras such as
guaranteeing a window seat or reserving a row of seats next to each other.
Again budget airlines are prime users of this approach when they charge
you extra for additional luggage or extra legroom.

9. Premium Pricing.

Use a high price where there is a unique brand. This approach is used
where a substantial competitive advantage exists and the marketer is safe
in the knowledge that they can charge a relatively higher price. Such high
prices are charged for luxuries such as Cunard Cruises, Savoy Hotel
rooms, and first class air travel.

10. Bundle Pricing

The act of placing several products or services together in a single package

and selling for a lower price than would be charged if the items were sold
separately. The package usually includes one big ticket product and at
least one complementary good. Bundled pricing is a marketing method
used by retailers to sell products in high supply.

Factors influencing
Pricing
26 Jun 2024
Pricing decisions are influenced by a multitude of factors that collectively
shape how businesses set prices for their products or services. These
factors can be categorized into internal and external influences, each
playing a crucial role in determining the optimal pricing strategy.

Internal Factors:

1. Costs:

One of the most fundamental internal factors influencing pricing is the cost
of producing or acquiring the product or service. Pricing decisions often
start with understanding all costs incurred in the production, distribution,
and marketing of the offering. This includes direct costs (e.g., materials,
labor) and indirect costs (e.g., overheads, administrative expenses). Pricing
must ensure that these costs are covered to achieve profitability unless the
strategy is specifically focused on market penetration or other strategic
objectives.

2. Business Objectives:

The strategic goals of the business heavily influence pricing decisions.

Whether the objective is to maximize profit margins, gain market share,
achieve revenue growth, or establish a premium brand position, pricing
strategies must align with these overarching goals. For instance, a
company aiming for rapid market penetration might initially set lower prices
to encourage adoption, while a luxury brand may prioritize maintaining high
prices to preserve exclusivity and perceived value.

3. Marketing Mix Strategy:

Pricing is an integral part of the marketing mix, which includes product,

promotion, and place (distribution). The price set must align with the overall
marketing strategy to ensure consistency and effectiveness. For example,
a high-quality product positioned as premium in the market should be
complemented by a pricing strategy that reflects its perceived value and
supports the brand image.

4. Product Lifecycle Stage:

The stage of the product lifecycle influences pricing decisions. In the

introduction stage, for instance, pricing may focus on market penetration to
quickly gain acceptance, whereas in the maturity or decline stages, pricing
strategies might shift towards maintaining profitability or liquidating
inventory. Understanding where a product stands in its lifecycle helps
determine the appropriate pricing strategy to maximize returns.

5. Brand Positioning:

Brands often use pricing as a tool to position themselves within the market
relative to competitors. Premium brands may set higher prices to convey
exclusivity and superior quality, while value-oriented brands may adopt
competitive pricing strategies to attract price-sensitive consumers.
Consistency in pricing helps reinforce brand identity and perception among
target customers.

6. Capacity and Production Capability:

Internal factors such as production capacity and capability to scale

production also impact pricing decisions. A company with excess capacity
may choose to lower prices to stimulate demand and utilize capacity
effectively, whereas capacity constraints might lead to higher prices to
manage demand and maintain profitability.

External Factors:

1. Market Demand:

Customer demand is a critical external factor influencing pricing decisions.

Understanding the price sensitivity of target customers through market
research helps businesses set prices that customers are willing to pay.
Demand elasticity—the degree to which demand changes with price—plays
a significant role. Inelastic demand allows for higher prices without
significant drops in demand, while elastic demand requires more
competitive pricing to attract customers.

2. Competitive Pricing:

Competitors’ pricing strategies directly influence how a business positions

its prices in the market. Businesses must monitor competitors’ pricing
levels, adjustments, and promotional strategies to determine their own
pricing strategy. Pricing above competitors may signal higher quality or
exclusivity, while pricing below competitors may attract price-sensitive
customers or gain market share.
 3. Industry and Market Conditions:

External economic factors, such as inflation rates, interest rates, and

overall economic stability, impact pricing decisions. Inflation may
necessitate price adjustments to maintain profitability, while economic
downturns may lead to promotional pricing to stimulate demand.
Industry-specific conditions, such as regulatory changes or technological
advancements, also influence pricing strategies.

4. Supplier and Distribution Costs:

External factors related to suppliers and distribution channels can affect

pricing decisions. Changes in raw material costs, transportation costs, or
tariffs can impact the cost structure and necessitate adjustments in product
pricing. Similarly, distribution costs and efficiency influence how prices are
set to ensure competitiveness and profitability across different markets.

5. Legal and Regulatory Environment:

Pricing decisions must comply with legal and regulatory frameworks,

including antitrust laws, price-fixing regulations, and consumer protection
laws. These regulations aim to ensure fair competition and protect
consumers from unfair pricing practices. Businesses must navigate these
legal requirements when setting prices to avoid legal repercussions and
maintain ethical business practices.

6. Social and Cultural Factors:

Societal attitudes, cultural perceptions, and consumer behaviors also

influence pricing decisions. Factors such as income levels, lifestyle
preferences, and cultural norms affect how consumers perceive prices and
their willingness to pay. Understanding these social and cultural dynamics
helps businesses tailor pricing strategies to align with consumer
expectations and market acceptance.

7. Technological Advancements:

Advances in technology can impact pricing strategies by influencing

production costs, enabling new pricing models (e.g., subscription-based
pricing for software as a service), or facilitating price transparency through
online platforms. Businesses leveraging technology effectively can optimize
pricing strategies to remain competitive and capture value in evolving
markets.

Pricing objectives and

Determinants
30 Nov 2019

PRICING OBJECTIVES

1. Profits-related Objectives:

Profit has remained a dominant objective of business activities.

Company’s pricing policies and strategies are aimed at following

profits-related objectives:

i. Maximum Current Profit:

One of the objectives of pricing is to maximize current profits. This objective

is aimed at making as much money as possible. Company tries to set its
price in a way that more current profits can be earned. However, company
cannot set its price beyond the limit. But, it concentrates on maximum
profits.

ii. Target Return on Investment:

Most companies want to earn reasonable rate of return on investment.

Target return may be:

(1) fixed percentage of sales,

(2) Return on investment, or

(3) A fixed rupee amount.

Company sets its pricing policies and strategies in a way that sales
revenue ultimately yields average return on total investment. For example,
company decides to earn 20% return on total investment of 3 crore rupees.
It must set price of product in a way that it can earn 60 lakh rupees.

2. Sales-related Objectives:

The main sales-related objectives of pricing may include:

i. Sales Growth:

Company’s objective is to increase sales volume. It sets its price in such a

way that more and more sales can be achieved. It is assumed that sales
growth has direct positive impact on the profits. So, pricing decisions are
taken in way that sales volume can be raised. Setting price, altering in
price, and modifying pricing policies are targeted to improve sales.

ii. Target Market Share:

A company aims its pricing policies at achieving or maintaining the target

market share. Pricing decisions are taken in such a manner that enables
the company to achieve targeted market share. Market share is a specific
volume of sales determined in light of total sales in an industry. For
example, company may try to achieve 25% market shares in the relevant
industry.

iii. Increase in Market Share:

Sometimes, price and pricing are taken as the tool to increase its market
share. When company assumes that its market share is below than
expected, it can raise it by appropriate pricing; pricing is aimed at improving
market share.

3. Competition-related Objectives:

Competition is a powerful factor affecting marketing performance. Every

company tries to react to the competitors by appropriate business
strategies.

With reference to price, following competition-related objectives may

be priorized:

i. To Face Competition:
Pricing is primarily concerns with facing competition. Today’s market is
characterized by the severe competition. Company sets and modifies its
pricing policies so as to respond the competitors strongly. Many companies
use price as a powerful means to react to level and intensity of competition.

ii. To Keep Competitors Away:

To prevent the entry of competitors can be one of the main objectives of

pricing. The phase ‘prevention is better than cure’ is equally applicable
here. If competitors are kept away, no need to fight with them. To achieve
the objective, a company keeps its price as low as possible to minimize
profit attractiveness of products. In some cases, a company reacts
offensively to prevent entry of competitors by selling product even at a loss.

iii. To Achieve Quality Leadership by Pricing:

Pricing is also aimed at achieving the quality leadership. The quality

leadership is the image in mind of buyers that high price is related to high
quality product. In order to create a positive image that company’s product
is standard or superior than offered by the close competitors; the company
designs its pricing policies accordingly.

iv. To Remove Competitors from the Market:

The pricing policies and practices are directed to remove the competitors
away from the market. This can be done by forgoing the current profits – by
keeping price as low as possible – in order to maximize the future profits by
charging a high price after removing competitors from the market. Price
competition can remove weak competitors.

4. Customer-related Objectives:

Customers are in center of every marketing decision.

Company wants to achieve following objectives by the suitable

pricing policies and practices:

i. To Win Confidence of Customers:

Customers are the target to serve. Company sets and practices its pricing
policies to win the confidence of the target market. Company, by
appropriate pricing policies, can establish, maintain or even strengthen the
confidence of customers that price charged for the product is reasonable
one. Customers are made feel that they are not being cheated.

ii. To Satisfy Customers:

To satisfy customers is the prime objective of the entire range of marketing

efforts. And, pricing is no exception. Company sets, adjusts, and readjusts
its pricing to satisfy its target customers. In short, a company should design
pricing in such a way that results into maximum consumer satisfaction.

5. Other Objectives:

Over and above the objectives discussed so far, there are certain
objectives that company wants to achieve by pricing.

They are as under:

i. Market Penetration:

This objective concerns with entering the deep into the market to attract
maximum number of customers. This objective calls for charging the lowest
possible price to win price-sensitive buyers.

ii. Promoting a New Product:

To promote a new product successfully, the company sets low price for its
products in the initial stage to encourage for trial and repeat buying. The
sound pricing can help the company introduce a new product successfully.

iii. Maintaining Image and Reputation in the Market:

Company’s effective pricing policies have positive impact on its image and
reputation in the market. Company, by charging reasonable price,
stabilizing price, or keeping fixed price can create a good image and
reputation in the mind of the target customers.

iv. To Skim the Cream from the Market:

This objective concerns with skimming maximum profit in initial stage of

product life cycle. Because a product is new, offering new and superior
advantages, the company can charge relatively high price. Some segments
will buy product even at a premium price.

v. Price Stability:

Company with stable price is ranked high in the market. Company

formulates pricing policies and strategies to eliminate seasonal and cyclical
fluctuations. Stability in price has a good impression on the buyers.
Frequent changes in pricing affect adversely the prestige of company.

vi. Survival and Growth:

Finally, pricing is aimed at survival and growth of company’s business

activities and operations. It is a fundamental pricing objective. Pricing
policies are set in a way that company’s existence is not threatened.

DETERMINANTS OF PRICING

Competition

A competitive pricing strategy, where prices for a product or service are set
based primarily on the prices of the competition, is best suited for a
price-sensitive and highly competitive market. Whether you use this type of
strategy or not, you should always take your competition’s pricing into
account when setting your own pricing, unless you hold a monopoly. If
consumers perceive your product and your competition’s as having equal
value, you could lose out in a big way if your competitor’s price is lower
than yours is.

Market Demand

The laws of supply and demand should always come into play when setting
your pricing. If a product is in high demand, particularly if demand exceeds
supply, then the market can bear a higher price. Conversely, if demand
dwindles, consumers will not be willing to pay higher prices. Your pricing
should remain relatively stable over time, but you can put promotions in
place to discount the price when needed.

Brand Strategy

Setting your prices without a thorough grasp of your brand objectives can
destroy any brand-building efforts. Your price is a part of your brand image.
Think about Walmart, which has built its entire brand around low pricing, or
Tiffany & Co., whose consumers expect high-end pricing. If your products’
prices are not in line with your brand image, you will most likely confuse
consumers instead of convert them.

Cost of Goods Sold

If you want to make a profit on the sale of your products, you must charge a
higher price than what it cost you to actually produce and transport them.
The cost of goods sold almost always plays an integral role in any pricing
strategy. The exception to this is if you are promoting your product as a
loss leader. A loss leader is a product that is sold below cost as an
incentive for consumers to purchase other products at normal prices. Many
mobile carriers, for example, sell cell phones at hugely discounted rates so
that consumers will sign on for one of their cell phone service packages.

Pricing Methods
26 Jun 2024

Pricing methods refer to the approaches and strategies businesses use to

determine the monetary value of their products or services. These methods
vary based on factors such as market conditions, competitive landscape,
customer demand, and business objectives.

Cost-Based Pricing:

Cost-based pricing involves setting prices based on the costs incurred in

producing, distributing, and selling a product or service, along with a
desired profit margin. There are two primary approaches within cost-based
pricing:

● Cost-Plus Pricing:

Also known as markup pricing, this method involves adding a markup

(percentage) to the total cost of producing the product. For example, if a
product costs $50 to produce and the desired markup is 50%, the selling
price would be $75 ($50 + 50% markup).

● Full-Cost Pricing:
This method considers both variable and fixed costs associated with
producing a product, ensuring that all costs are covered while incorporating
a desired profit margin. It provides a comprehensive view of the cost
structure to determine a profitable price point.

Cost-based pricing is straightforward and ensures that all costs are

covered, but it may not always reflect market demand or competitive pricing
dynamics.

Market-Based Pricing:

Market-based pricing focuses on setting prices based on market conditions,

customer perceptions, and competitor pricing strategies. It considers what
customers are willing to pay and what competitors are charging for similar
products. Common market-based pricing methods:

● Competitive Pricing:

Setting prices based on the prices charged by competitors. This can

involve pricing at, above, or below competitors’ prices depending on the
product’s perceived value and market positioning.

● Perceived-Value Pricing:

This approach considers the value customers perceive in the product and
sets prices accordingly. Products with unique features, superior quality, or
strong brand equity can command higher prices based on perceived value
rather than cost.

● Value-Based Pricing:

Similar to perceived-value pricing, value-based pricing focuses on the

economic value a product delivers to customers. It involves understanding
customer needs, willingness to pay, and the competitive landscape to
determine prices that maximize value for customers and profitability for the
business.

Market-based pricing methods are responsive to customer demand and

competitive dynamics, making them effective in dynamic markets but
requiring ongoing market research and competitive analysis.

Demand-Based Pricing:
Demand-based pricing strategies adjust prices according to variations in
customer demand and market conditions. These methods aim to optimize
revenue by aligning prices with customer willingness to pay. Common
demand-based pricing strategies:

● Price Skimming:

Setting high initial prices for new products or services to capitalize on early
adopters’ willingness to pay. Over time, prices are gradually lowered to
attract more price-sensitive segments of the market.

● Penetration Pricing:

Setting low prices initially to penetrate a market quickly and gain market
share. This strategy aims to attract price-sensitive customers and stimulate
demand, with the potential to increase prices once market share is
established.

● Dynamic Pricing:

Adjusting prices in real-time based on fluctuations in demand, supply, or

market conditions. This can involve algorithms that change prices based on
factors such as time of day, customer location, or competitor pricing.

Demand-based pricing strategies require robust data analytics and market

intelligence to effectively predict and respond to changes in customer
behavior and market dynamics.

Psychological Pricing:

Psychological pricing strategies leverage consumer psychology and

perception to influence purchasing decisions. These methods often involve
setting prices that end in certain digits (e.g., $9.99 instead of $10) or using
price points that convey a specific message about the product’s value or
quality:

● Odd-Even Pricing:

Setting prices just below a round number (e.g., $19.99 instead of $20) to
create a perception of a lower price.

● Price Bundling:
Offering multiple products or services together at a lower combined price
than if purchased separately. This can encourage larger purchases and
increase perceived value.

Psychological pricing strategies are effective in influencing consumer

behavior and perception but must align with overall brand positioning and
pricing objectives.

Bundle Pricing:

Bundle pricing involves offering multiple products or services for sale as a

combined package at a lower price than if purchased individually. This
method encourages customers to buy more products or services from the
same provider, increasing overall sales volume and potentially reducing
inventory for less popular items.

Promotional Pricing:

Promotional pricing strategies involve temporarily reducing prices to

stimulate demand, increase sales volume, or clear excess inventory.
Common promotional pricing methods:

● Discount Pricing:

Offering products at a reduced price, either as a percentage discount (e.g.,

20% off) or a fixed amount discount (e.g., $10 off).

● Loss-Leader Pricing:

Selling a product at a loss or minimal profit to attract customers to the store

or website in hopes they will also purchase other products at regular prices.

Promotional pricing strategies are effective for generating short-term sales

increases but should be carefully managed to avoid eroding brand value or
profitability in the long term.

Geographical Pricing:

Geographical pricing adjusts prices based on the location of customers,

taking into account factors such as shipping costs, local market conditions,
and competitive pricing in different regions or countries.
Pricing Strategies
9 Sep 2024

A business can use a variety of pricing strategies when selling a product or

service. The price can be set to maximize profitability for each unit sold or
from the market overall. It can be used to defend an existing market from
new entrants, to increase market share within a market or to enter a new
market.

Types of Pricing Strategies:

1. Penetration Pricing.

The price charged for products and services is set artificially low in order to
gain market share. Once this is achieved, the price is increased. This
approach was used by France Telecom and Sky TV. These companies
need to land grab large numbers of consumers to make it worth their while,
so they offer free telephones or satellite dishes at discounted rates in order
to get people to sign up for their services. Once there is a large number of
subscribers prices gradually creep up. Taking Sky TV for example, or any
cable or satellite company, when there is a premium movie or sporting
event prices are at their highest – so they move from a penetration
approach to more of a skimming/premium pricing approach.
2. Skimming Pricing

Price skimming sees a company charge a higher price because it has a

substantial competitive advantage. However, the advantage tends not to be
sustainable. The high price attracts new competitors into the market, and
the price inevitably falls due to increased supply.

Manufacturers of digital watches used a skimming approach in the 1970s.

Once other manufacturers were tempted into the market and the watches
were produced at a lower unit cost, other marketing strategies and pricing
approaches are implemented. New products were developed and the
market for watches gained a reputation for innovation.

3. Competition Pricing

Competitive pricing consists of setting the price at the same level as one’s
competitors. This method relies on the idea that competitors have already
thoroughly worked on their pricing. In any market, many firms sell the same
or very similar products, and according to classical economics, the price for
these products should, in theory, already be at an equilibrium (or at least at
a local equilibrium). Therefore, by setting the same price as its competitors,
a newly-launched firm can avoid the trial and error costs of the price-setting
process. However, every company is different and so are its costs.
Considering this, the main limit of the competitive pricing method is that it
fails to account for the differences in costs (production, purchasing, sales
force, etc.) of individual companies. As a result, this pricing method can
potentially be inefficient and lead to reduced profits.

For example, a firm needs to price a new coffee maker. The firm’s
competitors sell it at $25, and the company considers that the best price for
the new coffee maker is $25. It decides to set this very price on their own
product. Moreover, this pricing method can also be used in combination
with other methods such as penetration pricing for example, which consists
of setting the price below that of its competition (for instance, in this
example, setting the price of the coffee maker at $23).

4. Product Line Pricing.

Where there is a range of products or services the pricing reflects the

benefits of parts of the range. For example car washes; a basic wash could
be $2, a wash and wax $4 and the whole package for $6. Product line
pricing seldom reflects the cost of making the product since it delivers a
range of prices that a consumer perceives as being fair incrementally –
over the range.

If you buy chocolate bars or potato chips (crisps) you expect to pay X for a
single packet, although if you buy a family pack which is 5 times bigger, you
expect to pay less than 5X the price. The cost of making and distributing
large family packs of chocolate/chips could be far more expensive. It might
benefit the manufacturer to sell them singly in terms of profit margin,
although they price over the whole line. Profit is made on the range rather
than single items.

5. Psychological Pricing.

This approach is used when the marketer wants the consumer to respond
on an emotional, rather than rational basis. For example Price Point
Perspective (PPP) 0.99 Cents not 1 US Dollar. It’s strange how consumers
use price as an indicator of all sorts of factors, especially when they are in
unfamiliar markets. Consumers might practice a decision avoidance
approach when buying products in an unfamiliar setting, an example being
when buying ice cream. What would you like, an ice cream at $0.75, $1.25
or $2.00? The choice is yours. Maybe you’re entering an entirely new
market. Let’s say that you’re buying a lawnmower for the first time and
know nothing about garden equipment. Would you automatically by the
cheapest? Would you buy the most expensive? Or, would you go for a
lawnmower somewhere in the middle? Price therefore may be an indication
of quality or benefits in unfamiliar markets.

6. Cost Plus Pricing

Your company has been developing a new printer that will streamline many
processes for your small business customers. Your job is to determine the
price of the printer. After doing some research, you determine that the best
method for pricing the printer is the cost-plus method.

Cost-plus pricing is a straightforward and simple way to arrive at a sales

price by adding a markup to the cost of a product. In our example of the
printer, you first have to determine the break-even price, which is the sum
of all of the expenses involved in creating a product, including expenses
like supplies, production costs, and marketing costs. When you pull all of
the expenses together to determine the cost of each printer, you determine
that each one will cost $78 to produce. If you sold the printer at $78 your
company would break even, meaning there would be no profit or loss.

7. Cost-based pricing

Cost-based pricing involves setting prices based on the costs for

producing, distributing and selling the product. Also, the company normally
adds a fair rate of return to compensate for its efforts and risks. To begin
with, let’s look at some famous examples of companies using cost-based
pricing. Firms such as Ryanair and Walmart work to become the low-cost
producers in their industries. By constantly reducing costs wherever
possible, these companies are able to set lower prices. Certainly, that leads
to smaller margins, but greater sales and profits on the other hand. But
even companies with higher prices may rely on cost-based pricing.
However, these companies usually intentionally generate higher costs so
that they can claim higher prices and margins.

8. Optional Product Pricing.

Companies will attempt to increase the amount customers spend once they
start to buy. Optional ‘extras’ increase the overall price of the product or
service. For example airlines will charge for optional extras such as
guaranteeing a window seat or reserving a row of seats next to each other.
Again budget airlines are prime users of this approach when they charge
you extra for additional luggage or extra legroom.

9. Premium Pricing.

Use a high price where there is a unique brand. This approach is used
where a substantial competitive advantage exists and the marketer is safe
in the knowledge that they can charge a relatively higher price. Such high
prices are charged for luxuries such as Cunard Cruises, Savoy Hotel
rooms, and first class air travel.

10. Bundle Pricing

The act of placing several products or services together in a single package

and selling for a lower price than would be charged if the items were sold
separately. The package usually includes one big ticket product and at
least one complementary good. Bundled pricing is a marketing method
used by retailers to sell products in high supply.